Analysis of L&T Finance IPO

July 28th, 2011

L&T Finance has generated quite a bit of hype for its IPO. Due to lack of time, I have not been able to make a better study of the same and hence valuation. Hence, I will restrict myself to a relative valuation this time around.

For this purpose, I shall use the companies that they have mentioned in the RHP. The various figures for them is mentioned below.
EPS L&T Finance 2.87 Price 59 P/E 20.56 RONW 13.58% BV/share 20.4 P/BV 2.89

No, if we consider that the issue gets listed at the upper limit (as has been the trend in recent times), then L&T Finance has a P/E ratio greater than any of the peers that they mentioned in the RHP. What more, the closest anyone comes to it is IDFC, trading at a multiple of 15.25 times earnings. Although the P/BV is not so bad if we consider the same price of Rs 59. This in turn shows an important fact: The low RONW. Among the group L&T Finance has the second lowest RONW. The next highest is at 17.37% to its 13.58%. The higher price may reflect a very important assumption a faster growth in earnings than its peers. This may in turn increase the RONW in the coming years. When I took a look at that, L&T Finances profits surged by 49.26% Y-o-Y for FY11. Compared to this, M&M Financial services profit surged by 35.13%, Shriram Transport Finances by 40.86% and IDFCs by 26.09%. If we assume (for argument sake, these growth rates may not be replicated, but the actual growth rates might be in proportion to these), then we get the following result:
Price (as on 27/07/11) 59

EPS L&T Finance 4.305

Fwd. looking P/E 13.70

Based on this, the price does not seem too high. What more, in a preferential allocation of shares in September 2010, L&T invested Rs 425 crore at Rs 67 per share. Although this is not a straightaway value pick according to me, but you can still put some money in it.
L&T Finance Holdings, subsidiary of L&T group is coming up with an Initial Public Offer (IPO) to raise upto Rs.1245 crores. This is first public issue since L&T listed way back in 1950! The IPO opens on July 27 and closes on 29, has been priced in the range of Rs.51 to Rs.59 L&T Finance Holdings is a fully-owned subsidiary of engineering giant L&T. L&T Finance Holdings owns five subsidiaries namely L&T Infrastructure Company, L&T Finance, India Infrastructure Developers, L&T

Investment Management and L&T Mutual Fund Trustees. Combined assets of these group companies as of FY11 are at Rs.18,800 crore. It was up from Rs.12,000 crores in FY10. The company had a PAT of Rs.392 crores last fiscal, it had grown from Rs.262 crores in the previous fiscal. The proposed 17% equity dilution values L&T Finance Holdings between Rs.8,800 crore and Rs.9,900 crores. The proceeds from this IPO will be used to fund the expansion of subsidiaries L&T Finance and L&T Infra Finance. In July, L&T Finance Holdings has raised Rs.330 crores through a pre-IPO placement. It sold a 4% stake to Capital International Group at Rs.55 per share. IPO Valuation L&T Finance Holdings' FY11 EPS on post-issue equity stands at Rs. 2.28 and Rs.2.33 on post-issue equity of Rs. 1721.02 crore (lower band of Rs. 51) and Rs. 1688.02 crore (on higher band of Rs. 59). At the price band of Rs. 51 to Rs. 59, P/E works out to 22.4 to 25.3 times. Current book value of L&T Finance Holdings is Rs. 19.6. Pre issue P/BV at issue price of Rs. 51 comes out to 2.6, while at issue price of Rs. 59 it is 3.0. Post-issue BV works out at Rs.24.1 and Rs.24.5 at issue price of Rs.51 and Rs.59, respectively. P/BV at both the bands works out to 2.1 and 2.4 times, respectively. CARE / ICRA has assigned an IPO Grade 5 to L&T Finance IPO. This means as per CARE / ICRA, company has 'Strong Fundamentals'. This IPO price does not looks very high when looked at from long term perspectives. The stock should give good returns in coming 3-4 years. Listing gains may not be very high. Cautious investors may look at the listing of IPO and then decide when to buy stocks of this holding company from engineering giant.

L&T Finance Holdings IPO (Initial Public Offering): Analysis

25/07/2011

L&T Finance Holdings, a subsidiary of engineering giant Larsen & Toubro is entering into primary market with an Initial Public Offering (IPO) of Equity Shares of Rs 10 each. The IPO is opening on 27th July 2011 and will close on 29th July 2011. The premium of the issue will be decided through a 100% Book Building Process. The price band for the

issue has been fixed at Rs 51 to Rs 59. The company is likely to raise around Rs 1245 Crore through the issue. The issue consists of Rs 50 crore worth of equity shares reserved for employees and Rs 125 crore for L&T shareholders. L&T Finance Holdings is a financial holding company offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors, as well as mutual fund products and investment management services. The proceeds of the IPO are proposed to be utilized for repayment of intercorporate deposit issued by promoter to company (worth Rs 345 crore); and augmenting the capital base of L&T Finance (by infusing Rs 570 crore) and L&T Infra (by investing Rs 535 crore), to meet the capital adequacy requirements to support the future growth in their business. L&T Finance Holdings is a fully-owned subsidiary of engineering giant L&T. L&T Finance Holdings owns five subsidiaries namely L&T Infrastructure Company, L&T Finance, India Infrastructure Developers, L&T Investment Management and L&T Mutual Fund Trustees. Combined assets of these group companies as of FY11 are at Rs.18,800 crore. It was up from Rs.12,000 crores in FY10. The company had a PAT of Rs.392 crores last fiscal, it had grown from Rs.262 crores in the previous fiscal. L&T Finance Holdings has raised Rs.330 crores through a pre-IPO placement in July 2011. It sold a 4% stake to Capital International Group at Rs.55 per share. This IPO price band puts the price to book value ratio between 1.7 1.9, this is comparable to similar NBFC peers like M&M Finance (2.1 2.3 P/BV) IDFC (1.7-1.8 P/BV). This IPO price does not looks very high when looked at from long term perspectives. The stock should give good returns in coming 3-4 years. Listing gains may not be very high. Cautious investors may look at the listing of IPO and then decide when to buy stocks of this holding company from engineering giant.

L&T Finance Holdings Limited has informed the share market (BSE/NSE) that the shares of its recent Initial Public Offering (IPO) will list on 12th August 2011. The IPO was open between 27th July 2011 to 29th July 2011. The price band was Rs 51 to Rs 59 and the Issue Price was fixed at near to the lower level of the price band, Rs 52 per equity share. The company had entered into primary market with an Initial Public Offering (IPO) of Rs 1,245.00 Crore. L&T Finance Holdings is a financial holding company offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors, as well as mutual fund products and investment management services. IPO Listing Detail :Listing Date: 12th August 2011 BSE Scrip Code : 533519 NSE Symbol : L&TFH Listing In : B Group of Securities ISIN : INE498L01015 Issue Price : Rs. 52.00 Per Equity Share Face Value : Rs. 10.00 Per Equity Share The proceeds of the IPO are proposed to be utilized for repayment of intercorporate deposit issued by promoter to company (worth Rs 345 crore); and augmenting the capital base of L&T Finance (by infusing Rs 570 crore) and L&T Infra (by investing Rs 535 crore), to meet the capital adequacy requirements to support the future growth in their business. The equity shares offered through the IPO are proposed to be listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)

L&T Finance Listing Indias L&T Finance Holdings up to 17.5 billion rupee ($392 million) initial public offering will open on July 26 and close July 29. Open Date 27-Jul-2011 Close Date 29-Jul-2011 Allotment Date 08-Aug-2011 Refund Date 09-Aug-2011 Listing Date : L&T Finance Holdings , a subsidiary of engineering and construction company Larsen and Toubro, will be listing its equity shares on exchanges on Friday, August 12. The company has fixed issue price at Rs 52 a share while the price band was 51-59 a share.

The issue, which opened between July 27-29, was subscribed more than 5 times. Reserved portion of retail investors was subscribed 9.61 times while non-institutional investors portion got subscribed 6.18 times and qualified institutional buyers 1.93 times. L&T Finance received Rs 1,245 crore through the issue. Parent company L&Ts stake in the company reduced to 83% post issue. Company intends to use issue proceeds for augmenting the capital base of L&T Finance and L&T Infra to meet the capital requirements arising out of expected growth in their assets, primarily the loan portfolio